What Is your pension worth (in court)? CIA General Meeting C5-IP M. Kavanagh L. Rivest

What Is your pension worth (in court)?

CIA General Meeting C5-IP

M. Kavanagh

L. Rivest

What is your pension worth (in court)?

• The court decides

• based on laws, rules, precedents• as interpreted • to the particular facts of the case


• The actuary opines

• as an expert on pension valuation• in order to assist the court in deciding

• The actuary does not decide.


• The first items to consider are the laws, rules and precedents for valuation.

• These vary by province,

• and the type of law suit.


• Ontario is the area I am most familiar with

• I have seen three separate approaches – Tort ( Wrongdoing) rules

• wrongful death• wrongful dismissal

– Family Law• marriage breakdown

What is your pension worth (in court)? Tort Actions

• These actions deal with past and future payments.

• Rules of evidence vary significantly

• Probably the most financially significant difference is the interest rate

What is your pension worth (in court)? Tort Actions (Ontario)

• Past and Present are separated by the start date of the trial.

• Past interest rates– may be pre-judgment interest Court

rules( tiresome)-Courts of Justice Act-Rules of Civil Procedure

– may be 2% per month compounded monthly( for some accident payments)

What is your pension worth (in court)? Family Law On Marriage Breakdown

• "property" means any interest, present or future, vested or contingent, in real or personal property...

• (c) in the case of a spouse's rights under a pension plan that have vested, the spouse's interest in the plan including contributions made by other persons; ("bien")

• source --http://www.canlii.org

What is your pension worth (in court)? Family Law On Marriage Breakup

• "net family property" means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,...

• the value of property, ..., that the spouse owned on the date of the marriage, .., calculated as of the date of the marriage; ("biens familiaux nets")

• --http://www.canlii.org

What is your pension worth (in court)? Family Law On Marriage Breakup

• Courts have accepted:– CIA marriage breakdown standards the basic

approach to be used for Family Law Act suits, with specified interest and mortality approach .

• Types – Defined contribution

– Defined benefit

– Mixed

What is your pension worth (in court)? Background Family Law

• Defined Contribution– accepted values are accumulated contributions

– plus interest

• Defined Benefit– Courts accept the actuarial approach specified

in the marriage breakdown standards

• mixed– Which feature predominates?

What is your pension worth (in court)? Background Family Law

• Defined Benefit– fundamental items are

• plan rules for pension being valued

• interest rates

– based on Federal bonds for 15 years then 3.25% or 6%

• mortality table- 1983 GAM

• plan member ( and spouse sometimes) data

What is your pension worth (in court)? Defined Benefit Practical 1

• Sources of information– Employee annual statements

– Plan texts( some are on internet)

– Employee booklets

– Marriage breakdown reports• get authorization to get information


• Missing – Ad hoc Indexing practices

– Early retirement rights

– Special Situations - e.g. Air Canada

– Special administrative rights• plan closings, getting rid of employees

– Marriage and separation dates • use cohabitation or not?


• Missing – Retirement Compensation Arrangements

– Should retirement gratuities be considered?


• Valuation Steps– What was the pension as of the date of

separation?( total and components?)• Test your calculations against annual statement

– Hindsight evidence not generally allowed but court may take account of special situations.


• Valuation Steps- Assumptions– Interest rates depend on indexing provisions

and practice.( consider the effect of extremes where uncertain)

– Mortality Table is specified. ( Actuary is not per se qualified to give opinion on actual expected adjustment to table. ) May consider optional mortality conditionally -for information.


• Valuation Steps- Total PensionValue– Earliest undiscounted age

• discuss age and qualifiers

• what about subsidized early retirement ( 2% per year)

– What happens before this age or after max age?

– Death Benefits to the Member’s Estate• Commuted value or similar

– Is the difference material


• Valuation Steps- Total PensionValue– Service Discount- not generally accepted but

not tested in court since 1987 revisions.

– Excess Contributions• Note also that pension allocated to pre-1987 must

not be less than the value of the contributions plus interest

• post 1986 pension value must take up only 50% of those contributions plus interest

• Balance are deemed to be excess and usually are added to the value of the pension.


• Valuation Steps- Pre-Marital Allocation– the usual approach is pro-rata on service

following Supreme Court case Best vs Best

– in case of a pension in pay, with vested survivor rights, lower court decided to use value added for surviorship rights. i.e. 0% pre-marital

• There are equity arguments for both.

• Our reports say based on legal precedent and following a lower case. ( not actuarial issue)


• Valuation Steps- Income Tax Adjustment– this is the least uniform approach

• one method

– to project income to 65

– add CPP and adjusted OAS

– plus other income if advised of it or source

– calculate separation year tax rate for this with Old Age, and pension adjustment.

– Use the resulting tax rate for all retirement ages.


• The report-– The report is aimed at Judges, lawyers and

clients.

– Keep it simple but complete.

What is your pension worth (in court)? Marriage Breakdown Rationale

• The later section of the presentation was not able to be given due to lack of time .

Documents

What Is your pension worth (in court)? CIA General Meeting C5-IP M. Kavanagh L. Rivest